Key Points From This Week
US-Sino Trade Deal Expectations Rise Again
Investors had their expectations for a US-Sino trade deal bolstered once again this week as further comments from President Trump added encouragement. Trump noted that the US and China were in the “final throes” of a deal. The market now expects that the phase-one trade deal will be signed ahead of December 15th, keeping global investor appetite well supported.
Powell More Optimistic on US Economy
Following the release of the October FOMC minutes, which were more dovish than many were expecting, Fed chairman Powell spoke this week to reassure investors. Powell said that the glass of the US economy was “more than half full” and said that rates at current levels are appropriate for meeting the Fed’s 2% inflation target. Powell’s comments sparked further buying in the Dollar, keeping Fed easing expectations diluted in the near term.
US Crude Production Hits New Record Highs
The EIA reported another 100,000 bpd rise in US crude production last week which has taken production up to fresh highs of 12.9 million bpd. This latest rise has put directed further attention to the growing supply/demand imbalance in the market and is fuelling expectations of further production restrictions to be announced when OPEC meets next week.
BOJ’s Kuroda Says Room For More QE
Speaking this week, Kuroda told lawmakers in Japan that is the domestic economy lost any further momentum towards achieving the bank’s 2% inflation target, the BOJ would not hesitate to use further easing. The BOJ head said that there is still ample room for further easing, despite the mounting criticism of the BOJ’s ongoing monetary easing.
Key Events Next Week
RBA Rate Decision
The RBA meeting next week is a tough call. The bank has held rates unchanged at recent meetings though continues to signal that further easing could be necessary. While some forecast that the bank might look for one final round of easing before year-end, a more optimistic tone to US-Sino trade talks means that the bank might opt to stay on hold yet again, keeping its powder dry in case a deal falls through.
BOC Rate Decision
As with the RBA, the BOC has been on hold recently while signalling the likelihood of further easing in the future. With the US and China expected to sign a deal in the coming weeks, the BOC too might opt to remain on hold again for now.
OPEC is widely expected to announce a further tweak to its production cuts when it meets next week on December 5th/6th. However, the content of this adjustment is key. If OPEC simply announces a further extension to the current cuts, this might not be enough to support the market, given surging US production levels. However, if the group announces deeper cuts along with an extension, this could help WTI prices rally.
The US employment reports will be the headline data set next week. A solid gain last time around is keeping expectations geared towards further upside. In light of the Fed’s recent decision to keep rates on hold, a good number will keep the Dollar well supported. However, any negative surprise could see easing expectations creeping back up, pulling the Dollar lower.
Keep An Eye On
UK Elections Updates
The UK elections race is heating up now as we head into the final two weeks before the December 12th elections. Polls continue to show the Conservative party in the lead though many polls show the margin between the frontrunning party and Labour reducing. As such, there is still a great deal of uncertainty which is keeping the British Pound tightly congested currently. Any Conservative gain in the polls next week should lift the Pound while any further narrowing of the gap between the two lead parties will likely take the Pound lower.
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